Judge’s Radical Exxon Ruling Could Turn The Legal System Upside Down

A Texas federal judge’s recent order — that the attorneys general of Massachusetts and New York must submit to questioning by lawyers for ExxonMobil about why they are investigating the company — is highly unusual and unwarranted, as is the underlying lawsuit brought by ExxonMobil against the prosecutors. If upheld, this approach could turn the legal system upside down, allowing wrongdoers possessing sufficient resources to file lawsuits that paralyze law enforcement efforts aimed at protecting the public.

Although the Texas judge stated that he found sufficient grounds for ExxonMobil to investigate whether the two AGs had acted in bad faith, in fact the AGs have been engaged in activities that are commonplace and entirely appropriate for state prosecutors: (1) cooperating with AGs from other states, (2) consulting with experts about possible unlawful activity, (3) seeking documents to investigate that activity, and (4) speaking in public about the matters under review.

Summary

Dallas-based United States District Judge Ed Kinkeade has granted permission to oil and gas giant ExxonMobil to question under oath Massachusetts’ attorney general, Maura Healey, and New York’s attorney general, Eric Schneiderman, as to their motivations for investigations of the company. Issuing orders in a lawsuit filed by ExxonMobil, a case aimed at stopping Healey from going forward with her investigation, Judge Kinkeade has directed the two AGs to come to Dallas on December 13 to face depositions from ExxonMobil’s high-powered legal team.

Buoyed by the judge’s ruling, and possessing seemingly-limitless resources to engage in litigation, ExxonMobil also now has issued subpoenas in the case to non-profit environmental groups and private lawyers that provided advice and information to the two attorneys general.

Healey has said she will “vigorously oppose” Judge Kinkeade’s order for her to come to Texas and be deposed. “Our position in this ligation is that the authorities in Texas, and specifically the federal court down there, has no jurisdiction over state attorneys general and the work of their offices,” Healey told reporters in Boston on November 21. “It’s been disappointing to see Exxon fight the request for basic information. Our job as attorneys general is to be able to ask questions.”

Healey has filed a motion asking the judge to reconsider his ruling, and has indicated that, if necessary, she will seek to appeal the judge’s order to the United States Court of Appeals for the 5th Circuit.

Schneiderman, as well as the outside groups and lawyers, are also opposing Exxon’s efforts to take discovery in the Texas case. (Disclosure: I have advised some of the groups.)

The AGs and outside groups are on firm legal ground objecting to Judge Kinkeade’s highly unusual and unwarranted rulings. ExxonMobil’s lawsuit is a virtually unprecedented effort by a corporation to sue and investigate state prosecutors who are conducting an investigation of that corporation. If the case goes forward, it would give a green light to wealthy corporations of all kinds to seek out sympathetic federal judges and pursue expensive legal proceedings aimed at derailing state law enforcement investigations. Such a development would create new layers of lawsuits surrounding every dispute, force taxpayers to spend more to sustain state prosecutors’ offices, and make it much more difficult for attorneys general to protect the public against investor and consumer fraud, unsafe products, environmental harms, and other abuses.

To the extent that ExxonMobil has substantive and procedural objections to the attorneys general demands for information, it has every right to raise those objections in the Massachusetts and New York state courts, and indeed ExxonMobil is already doing just that.

Douglas Gansler, who was the attorney general of Maryland from 2007 to 2015, told Bloomberg that “he’s never heard of an instance where a company under investigation by a state sues and wins permission to question law-enforcement officers.” Gansler said: “Not only is it unusual, it’s unprecedented… It’s completely inconsistent with the law and the functioning of our government.”

Gansler expanded on that point in remarks yesterday at an event at the Center for American Progress. At the same event, entitled “The Battle for Climate Change Accountability,” Georgia State University law professor Neil Kinkopf said that there was nothing unusual or unwarranted about the Massachusetts and New York probes, that forcing depositions of the AGs would violate the Constitution, and that “I cannot even begin to fathom” the consequences of allowing such depositions to go forward.

Background of the dispute

The Texas suit by ExxonMobil is part of an aggressive legal strategy to block investigations by the attorneys general, investigations that focus on whether Exxon misled consumers and investors about the dangers of global warming and the potential impact of those dangers on the company’s bottom line. Investigative reporting in the past year showed that Exxon scientists have known and told Exxon management for decades that burning fossil fuels was heating up the planet, but rather than educate the public on the dangers and change its business strategy, Exxon instead spent millions supporting efforts to question and deny the science of climate change. The state AGs are also investigating whether ExxonMobil has properly accounted for its oil reserves in the wake of global price drops and evidence of global warming.

ExxonMobil contends there is no legitimate basis for the AG probes, and that the First Amendment shields the company from scrutiny for its public statements, a claim that leading constitutional law experts sharply dispute, because it is a settled legal principle that the First Amendment doesn’t protect fraud.

ExxonMobil, headquartered in Irving, Texas, filed its lawsuit in nearby Dallas against Healey alone, but after Kinkeade ruled on October 13 that ExxonMobil could pursue discovery against the Massachusetts AG, ExxonMobil added Schneiderman as a defendant in the case.

Schneiderman issued a subpoena to ExxonMobil in November 2015, and Healey issued a civil investigative demand (CID) to the company in April 2016. Exxon already has produced more than 700,000 pages of documents to Schneiderman in response to his subpoena; on October 26, a New York judge ordered ExxonMobil and its auditor, PwC, to comply with a subpoena issued by Schneiderman seeking additional information regarding PwC’s auditing of the oil company.

ExxonMobil now also faces an investigation from the U.S. Securities and Exchange Commission, initiated in August 2016, examining a similar set of issues. In addition, in March 2016, the U.S. Department of Justice, responding to a congressional request to investigate ExxonMobil, referred the matter to the FBI.

Meanwhile, U.S. Representative Lamar Smith (R-TX), chairman of the House Science Committee, has subpoenaed documents from Healey, Schneiderman, and other state attorneys general. lawyers, and outside groups connected to the ExxonMobil matter. Over the summer, Smith held a committee hearing regarding his demands. For the most part, the AGs, groups, and lawyers have declined to comply.

ExxonMobil’s claims and Judge Kinkeade’s order

Judge Kinkeade’s order that the state attorneys general must face discovery is possibly unprecedented, and that’s because federal law, as established in the U.S. Supreme Court’s decision in Younger v. Harris, generally prohibits a federal court from interfering in a criminal, civil, or administrative investigation or proceeding brought by state officials; instead legal complaints about such matters belong in the state courts where the state officials are located.

ExxonMobil argued to Judge Kinkeade that Healey’s conduct — meeting with non-profit groups and other attorneys general, speaking out publicly regarding ExxonMobil’s conduct, and issuing a CID to the company — fell within the Supreme Court’s exception to the general rule of Younger: A federal court does not have to abstain from hearing such a case where a prosecutor is acting in bad faith or with the purpose of harassing the target.

As evidence of such bad faith, Exxon cited Healey’s participation in a March 29, 2016, press conference in New York with the so-called “Green 20” group of attorneys general, following a meeting that included attorneys general and outside experts from non-profit groups and law firms. Speakers at their press conference, under the banner “AGs United for Clean Power,” were attorneys general Healey, Schneiderman, William Sorrell of Vermont, George Jepsen of Connecticut, Brian Frosh of Maryland, Mark Herring of Virginia, and Claude Walker of the US Virgin Islands, along with former Vice President Al Gore.

In its September 8, 2016, filing with the court, ExxonMobil complained that at the New York press conference:

Attorney General Healey declared that “certain companies” needed to be “held accountable” for expressing a viewpoint on climate change that she disfavored. After acknowledging that “public perception” was her principal concern, she condemned her targets for not sharing her beliefs on “the catastrophic nature of” climate change. Attorney General Healey then pledged to take “quick, aggressive action” to “address climate change” by investigating ExxonMobil. Prejudging the investigation’s results, she told the public she had already found a “troubling disconnect between what Exxon knew, what industry folks knew, and what the company and industry chose to share with investors and with the American public.”

ExxonMobil in its court papers also attacked the motivation behind Healey’s CID to the company, which sought communications between Exxon and non-profit groups engaging in denying or questioning the science of climate change: “The focus of the CID on entities the Attorney General perceives to be antagonistic to her policy preferences underscores the improper motivation for issuing the CID in the first place—namely, to silence perceived political opponents.”

ExxonMobil’s papers also note that in April and May 2016, seventeen attorneys general, including Healey and Schneiderman, signed a “Common Interest Agreement” to share information and expressing as a goal “limiting climate change and ensuring the dissemination of accurate information about climate change.” Exxon Mobil contended that the existence of such an agreement “shows that the purpose of the Attorney General’s investigation is entirely political, pertaining to the promotion of preferred climate change policies.”

ExxonMobil told the court that this course of conduct by Healey proves that she “is engaging in unapologetic viewpoint discrimination, conducting an unlawful fishing expedition, directing a biased investigation with preordained results, and she is seeking to regulate speech and conduct occurring well beyond the borders of the Commonwealth of Massachusetts.”

Judge Kinkeade has not ruled that Exxon is entitled to the injunction it seeks stopping Healey’s investigation. But he did, on October 13, issue an order permitting Exxon to take limited discovery regarding whether he should dismiss the case under the Younger abstention doctrine. He ruled that ExxonMobil can examine “Attorney General Healey’s comments and actions before she issued the CID,” and whether AG Healey served the CID in bad faith.

In a written opinion, Judge Kinkeade cited, as cause for deposing Healey, all the factors raised by ExxonMobil: the New York AGs United for Clean Power meeting and press conference, the presence of outside experts and lawyers at the meeting, Healey’s remarks at the press conference, and Healey’s issuance of the CID to the company. Kinkeade declared “the allegations about Attorney General Healey and the anticipatory nature of Attorney General Healey’s remarks about the outcome of the Exxon investigation to be concerning to this Court.” The allegations, he wrote, “if true, may constitute bad faith in issuing the CID which would preclude Younger abstention.”

Armed with this ruling, ExxonMobil, on October 24, served on attorney general Healey more than a hundred discovery requests. On November 4, ExxonMobil sought depositions of Healey, Schneiderman, and two assistant attorneys general in each of their offices.

On November 10, Exxon filed an amended complaint adding Schneiderman as a defendant; the complaint charged that Schneiderman had given “unprecedented briefings to the press on the status of his ‘investigation’ of ExxonMobil and announced his expectation that a ‘massive securities fraud’ will be uncovered.” The company further charged that the demands for documents by Healey and Schneiderman “were issued in bad faith to deter ExxonMobil from participating in ongoing public deliberations about climate change and to fish through decades of ExxonMobil’s documents in the hope of finding some ammunition to enhance the coalition’s, and its climate activist confederates’, position in the policy debate over climate change.”

On November 17, Judge Kinkeade ordered Healey to appear in Dallas for a deposition on December 13 and also directed Schneiderman to be available in Dallas that day.(ExxonMobil itself actually had noticed Healey to appear for a deposition in Boston, where her offices are located.) Judge Kinkeade also ordered Healey to fulfill ExxonMobil’s written discovery requests within 10 days of receiving them.

On November 26, Healey filed a motion with Judge Kinkeade to set aside his order for a deposition and to stay the discovery against her.

Why the Judge’s order is unwarranted

Such written discovery and depositions are an unwarranted intrusion on the legitimate work of a state attorney general. Healey’s and Schneiderman’s actions were entirely consistent with the kinds of actions taken regularly by attorneys general and other prosecutors in the course of their work: consulting with outside experts, collaborating with attorneys general from other states, demanding information, and speaking out to educate the public on matters of concern, often prior to filing a formal enforcement action.

Judge Kinkeade’s finding of possible bad faith and bias is misguided. Attorneys general are not judges, charged with remaining impartial as a case proceeds. Attorneys general are advocates for the public. As public officials, state AGs have a duty to gather relevant information — and to educate the public about potential wrongdoing. They are not obligated to wait for a jury verdict, or even the filing of a lawsuit, before publicly addressing possible misconduct.

As Healey argues in an October 31 filing with the Texas court, her statements at the March 29 press conference, which Exxon claims prove that Healey has prejudged the outcome of her investigation, are entirely consistent with her duty to investigate violations of law. The statements, her legal team writes, “merely show that Attorney General Healey holds a belief that Exxon has or is engaged in conduct prohibited by the Massachusetts consumer protection statute… This is not an ‘unconstitutional prejudg[ment],’ as Exxon suggests…. Rather, it is a state law directive. Specifically, Massachusetts law requires the Attorney General to believe there has been a violation of Massachusetts law prior to issuing a CID.” (Healey additionally argues that the Texas federal court lacks personal jurisdiction over her, that the circumstances do not warrant the unusual step of deposing a top executive branch official, and that the matter, under federal law, is not yet ripe for decision.)

An amicus brief filed with Judge Kinkeade in August by the attorneys general of twelve states explains that it is standard procedure for state attorneys general, including Texas’s own attorney general, in seeking to protect their own citizens, to issue investigative demands to companies headquartered in other states, and for attorneys general in multiple states to coordinate efforts to investigate unlawful activities, for example with respect to tobacco companies, mortgage foreclosure abuses, sham cancer charities, and Volkswagen’s deceptions about vehicle emissions.

There are, in fact, numerous examples of attorneys general collaborating on investigations and speaking out against targets in advance of filing a case. Here are a few:

In 1988, a coalition of attorneys general from Alabama, Arizona, California, New York, Minnesota, Wisconsin, and West Virginia sued major insurance companies for allegedly conspiring to sell stripped-down liability policies to municipalities and schools.

In 1991, Michigan attorney general Frank Kelley issued a notice of intended action against Nu Skin International, a Utah based personal-care products business. Kelley issued a public statement charging that the company was ”operating an illegal pyramid marketing scheme.” He added, “Such practices are defined as pyramid schemes and are in clear violation of Michigan law.”

In 1994, Maryland’s attorney general office issued three dozen subpoenas as part of an investigation of an alleged pyramid scheme. An assistant attorney general told a reporter, “What we have is a lot of people who have been pressured. That’s exactly why this is open to fraud. (“Maryland Officials Are Trying to Find Out Who Is Running Game,” Washington Post, Dec. 13, 1994.

A group of eighteen state attorneys general and the Department of Justice pursued a case against Microsoft, which resulted in a 2001 settlement.

In 2007, the attorneys general of 28 states sent a letter to the federal Alcohol and Tobacco Tax and Trade Bureau warning of potentially fraudulent marketing of “energy drinks” that combined alcohol and caffeine. In connection with the initiative, Oregon attorney general Hardy Myers said, “Nonalcoholic energy drinks are very popular with today’s youth…Beverage companies are unconscionably appealing to young drinkers with claims about the stimulating properties of alcoholic energy drinks.” Maine attorney general Steven Rowe added, “I am deeply concerned that alcoholic energy drinks will lead to even more aggressive binge drinking than we are already seeing.”

In 2008, New York attorney general Andrew Cuomo subpoenaed United HealthGroup, the nation’s largest health care insurer and other large insurers, along with a notification of intent to sue the companies over assertions that they used “rigged data to manipulate the reimbursement rate to their customers who filed claims.” In a statement, Cuomo said, “When insurers like United create convoluted and dishonest systems for determining the rate of reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need.”

In 2010, the attorneys general of all 50 states and the District of Columbia joined together to investigate mortgage foreclosure practices and determine whether some banks had illegally forced borrowers from their homes. Patrick Madigan, an Iowa assistant attorney general, told a reporter, “‘We’ll contact the loan servicers, hear their stories, and then let the facts lead us where they will… We’d already been working with 13 other states on loan-servicing issues, but this new coalition is a law-enforcement action. This isn’t just policy review anymore; this is about lenders breaking the law.’ (“Foreclosure Crisis: Officials in 50 states, D.C. Launch Probe,” San Jose Mercury News, Oct. 13, 2010)

Following the 2010 BP Deepwater Horizon disaster, five state attorneys general formed the Gulf State Coalition in order to coordinate their legal efforts with respect to the oil spill. Attorneys general from Texas, Louisiana, Mississippi, Alabama and Florida met in Mobile, Ala., to plan to jointly to protect their states’ natural resources and coastal businesses.

In recent years, 37 state attorneys general formed a national working group to aimed at, as stated by the office of then-attorney general of Kentucky Jack Conway, “reviewing the troubling practices of some for-profit colleges.” Numerous state attorneys general have issued demands for information and filed lawsuits against for-profit colleges allegedly engaged in fraud or deceptive business practices. The attorneys general engaged in these efforts have spoken out publicly on numerous occasions about abuses in the for-profit college industry. In a 2015 press release, Conway praised efforts by Senator Dick Durbin (D-IL) to protect students and added, “It is time that the Department of Education publicly recognizes the serious threat for-profit colleges pose to all students and work toward protecting students against future harm.” In 2012, Conway and attorneys General Lisa Madigan (IL) and Beau Biden (DE) appeared at a Washington press conference alongside Durbin and three other senators to announce a settlement between 20 state AGs and an online lead generation company, QuinStreet, that was luring veterans to for-profit colleges through a website, GIBill.com, which looked to many like an official government site. The senators and attorneys general criticized QuinStreet but also addressed critical comments at the for-profit college industry with, for example, Conway saying, “These are public companies taking tax dollars, and they are, in many instances, not doing what we need them to do.”

Nor is an attorney general consulting with, or pursuing the same targets as, outside organizations and lawyers, any indication of misconduct; rather it is a common practice. Interest groups regularly petition prosecutors to take action and provide information that assists prosecutors in determining whether such action is in the public interest, and outside lawyers and experts regularly provide advice and support.

A few examples:

Months of pressure from members of the public, elected representatives, and advocates led to federal intervention in the investigation of a slaying of a rabbinical student in the Crown Heights neighborhood of Brooklyn, New York, in 1991.

By the time that the attorneys general of 46 states reached a landmark 1998 settlement agreement with four of the largest tobacco companies over smoking and health issues, various state AGs had been advised and assisted by a number of private law firms in the matter.

In October 2011, a coalition of businesses and groups asked state attorneys general to investigate Google for possible antitrust violations.

This past summer, after a string of high-profile police killings of unarmed African-Americans, members of the Congressional Black Caucus (CBC) sought meetings with U.S. Attorney General Loretta Lynch and FBI Director James Comey, and stood in front of the Department of Justice and demanded that Lynch initiate civil rights investigations.

Without attorneys general working together, and consulting with outside experts, lawyers, and elected officials, it would be more difficult to detect, deter, and punish violations of law, especially those by politically powerful interests.

If other judges issued rulings like Judge Kinkeade’s, corporate targets of investigations could tie down state law enforcement agencies in endless legal proceedings where prosecutors would be required to defend themselves.

Imagine if the tobacco companies could have spent years deposing the attorneys general investigating deceptions in the marketing of cigarettes, simply because AGs had declared tobacco harmful or accused the tobacco companies of deceptive acts, or because the AGs consulted with experts on smoking and health, or because the AGs worked together.

Imagine if each of the dozens of for-profit college companies now under investigation by state AGs sued those officials in federal courts, asking numerous federal judges to oversee discovery into whether the state AGs were biased against them or had prejudged their cases.

Perhaps drug lords and organized crime syndicates could attempt similar efforts to sue and depose state AGs in order to block investigations of their offenses.

Or perhaps Judge Kinkeade’s decision could be used by citizens groups to sue, say, Texas attorney general Ken Paxton for joining a lawsuit to stop federal environmental regulations. Should attorneys for such groups be able to depose the Texas AG regarding his motives for bringing the case, to see if he acted in bad faith? After all, it’s documented that the Texas AG and other Republican attorneys general opposed to the Obama administration’s Clean Power Plan and other climate change regulations have banded together, publicly spoken out against Obama environmental policies, and met behind closed doors with oil and gas industry lobbyists.

There is, in fact, nothing unusual or oppressive about the actions of the Massachusetts and New York attorneys general in the ExxonMobil matter. Judge Kinkeade’s ruling threatens to open a Pandora’s box of efforts by corporations and others to evade responsibility for misconduct. A world in which targets of law enforcement probes can engage in court-approved investigations of their investigators is unsustainable.

UPDATE 12/12/16:

A Wall Street Journal story today added this perspective:

Typically, the “bad faith standard” is reserved for a situation in which a judge observes “a level of personal aggrandizement,” said James Tierney, program director of the National State Attorneys General Program and the former attorney general of Maine. He cited as an example a hypothetical scenario in which a prosecutor is seen as pursuing a probe of someone who dated the prosecutor’s sister, and had a bad break-up.

“The implications of this are really, really serious,” said Mr. Tierney, a Democrat who has worked with attorneys general of both political parties, noting that he believes the effect is that it “chills all legitimate investigations. This isn’t about Exxon. This is about an attempt to chill government’s ability to investigate malfeasance.”

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